A whopping 56% of Americans say they pay too much in federal income taxes, according to a 2022 Pew Research Center survey. The good news? Not all income is subject to Uncle Sam’s greedy hands.1
As we head into the 2024 tax season, let’s explore 10 types of income the IRS thankfully won’t tax.
1. Financial Gifts That Keep on Giving
Generous financial gifts from loved ones can pad your bank account without padding your tax bill. In 2023, the annual federal gift tax limit is a hefty $17,000 per recipient.(ref)
So go ahead, enjoy that birthday cash guilt-free!
2. Inheritances: A Tax-Free Legacy
Losing a loved one is tough enough without worrying about taxes. Fortunately, inheritances are generally exempt from federal income tax.
The estate pays any taxes due before you receive the money, leaving you with a tax-free windfall.
3. Child Support: Untouchable Income
If you receive child support payments, you can breathe a sigh of relief. The IRS considers this money non-taxable income, ensuring more cash stays in your pocket for your little one’s needs.
4. Welfare Benefits: A Helping Hand
Welfare payments, such as those from SNAP or TANF, provide crucial assistance to those in need. The IRS recognizes this and keeps these benefits tax-free, allowing recipients to focus on getting back on their feet.(ref)
5. Veterans’ Benefits: Honoring Our Heroes
Our nation’s veterans have sacrificed so much for our freedom. That’s why the IRS exempts various veterans’ benefits from taxation, including disability compensation, pension payments, and grants for adapted housing or vehicles.
6. Workers’ Compensation: Relief for the Injured
If you’ve been hurt on the job, workers’ compensation payments can help you stay afloat financially. As long as these payments are made under a workers’ compensation act, the IRS won’t take a cut.
7. Municipal Bond Interest: A Tax-Savvy Investment
Investing in government-issued municipal bonds not only supports local projects but also offers tax perks. The interest earned on these bonds is often exempt from federal income tax and sometimes state and local taxes too.(ref)
8. Roth Account Distributions: Tax-Free Retirement Income
Contributing to a Roth IRA or 401(k) now can pay off big time in retirement. Qualified distributions from these accounts are completely tax-free, as long as you’ve had the account for at least five years and are over age 59½.
9. Alimony: A Tax Break for the Newly Divorced
Navigating a divorce is stressful enough without tax headaches. For separation agreements finalized after January 1, 2019, alimony payments are considered non-taxable income for the recipient.(ref)
One less thing to worry about during a trying time.
10. Disaster Relief Grants: A Silver Lining
Natural disasters can upend lives in an instant. But if you receive disaster relief grant payments and use the money for necessary expenses like medical care, housing, or transportation, the IRS won’t tax those funds. A small but important silver lining.
So there you have it—10 types of income the IRS mercifully won’t tax in 2024. While taxes may be one of life’s certainties, it’s comforting to know that not every dollar is up for grabs. Now if only we could get the IRS to keep their hands off our hard-earned paychecks too!
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Nancy Maffia
Nancy received a bachelor’s in biology from Elmira College and a master’s degree in horticulture and communications from the University of Kentucky. Worked in plant taxonomy at the University of Florida and the L. H. Bailey Hortorium at Cornell University, and wrote and edited gardening books at Rodale Press in Emmaus, PA. Her interests are plant identification, gardening, hiking, and reading.
